Question

You have decided to start saving for college and open up a 529 account. You invest $5,000 into the account at a 2% interest rate compounded monthly. How much money will you have after 5 years?
$5,520.40
$5,525.39
$6,744.25
$16,405.15

Answer 1

You will have $5,525.39 after 5 years.

Because the interest is compounded monthly, you need to convert the interest rate and the term of investment to a monthly basis.

Monthly interest = 2% / 12 = 2/12%

Term of investment = 5 x 12 = 60 months

To find the amount you will have in 5 years, use the formula:

Future value = Amount * ( 1 + interest) ^ term of investment

= 5,000 x ( 1 + 2/12%)⁶⁰

= $5,525.39

In conclusion, your investment will have compounded to $5,525.39 in 5 years.

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